POLITICS: THE ISSUES

Two Approaches to Repairing Cities

By JANE FRITSCH

Published: October 15, 1996

WASHINGTON, Oct. 14—
When Vice President Al Gore and Jack Kemp skirmished during last week's debate, Mr. Kemp accused the Democrats of not doing enough to improve the plight of American cities. Mr. Gore said the Democrats had done plenty.

With a volley of statistics, the Vice-Presidential candidates seemed to contradict each other, leaving listeners to wonder what they were talking about.

At the heart of the exchange was not so much a difference in numbers as it was a difference in philosophy about how to regenerate depressed urban areas.

Stated simply, Mr. Kemp advocates making tax incentives available to any business willing to move into a Federally designated depressed area. His is a free-enterprise approach that envisions little government involvement and assumes that neighborhoods will improve naturally as commerce takes root.

Mr. Gore and the Clinton Administration like tax incentives, too, but they say government should be more involved, first by tying tax breaks to the hiring of workers from the depressed area. And they say tax breaks are not enough. They want the Federal Government to provide grants to help communities near the new businesses in various ways, including job training programs to improve the labor pool.

''The approach combines the best of all present and past theories,'' said Andrew Cuomo, the assistant secretary for economic development at the Department of Housing and Urban Development. ''A business isn't going to move into Harlem just for the tax breaks. The neighborhood has to be safe and there has to be a trained work force.''

In the Republican view, that approach involves too much meddling by the government, particularly in doling out grants, said John C. Weicher, who was a top aide to Mr. Kemp when he was the HUD Secretary. ''I don't think the Federal Government should be running around deciding who is the best qualified person in New York or any neighborhood,'' Mr. Weicher said. ''You leave those decisions to people with money of their own at risk.''

The Clinton-Gore program was, in large part, borrowed from Mr. Kemp, who proposed in 1980 that ''enterprise zones'' be created in decimated urban and rural areas. The zones, which would offer tax advantages to businesses, had been tried with some success in Britain.

But the Republicans were never able to get the proposal enacted. A somewhat different proposal finally made it through Congress and was signed by President Clinton in 1993. The Democrats had changed the name to ''empowerment zones'' and had added grants and social programs. The legislation authorized the creation of only six urban and three rural empowerment zones, in contrast to the 300 zones that had been proposed by Mr. Kemp.

In the debate, Mr. Kemp said the Administration had ''abandoned the inner cities.''

''There's a socialist economy,'' he added. ''There's no private housing. It's mostly public housing.'' He complained that there were only nine empowerment zones and ''a few little tinkering with tax credits around the country for inner cities.''

Mr. Gore defended the Administration, saying that it had created 105 ''empowerment zones and enterprise communities around the country.''

In fact, a Federal panel chose six cities as empowerment zones in December 1994 from among dozens of competitors. Three rural zones were also designated. To appease the losers, the Administration created 95 ''enterprise communities,'' 65 urban and 30 rural areas that received $3 million grants and smaller packages of tax incentives.

The cities named as empowerment zones were New York, Chicago, Baltimore, Atlanta, Detroit and Philadelphia-Camden, N.J.. Each received $100 million in grants and the right to $250 million in tax incentives for businesses over 10 years.

There is little data yet available to demonstrate whether the program will work. Democrats say anecdotal evidence is positive. Republicans are skeptical.

Some of the cities, like New York, have had trouble getting started, largely because of local politics and rivalries. In New York, the program was delayed for more than a year and nearly died in a bitter dispute between Mayor Rudolph W. Giuliani and Gov. George E. Pataki, who was involved because the grant money is passed to the states from the Federal Government. Also, some civic leaders in Harlem voiced reservations because it would bring outside businesses -- particularly businesses that might not be black-owned -- into the neighborhood.

New York's zone includes part of upper Manhattan and part of the lower Bronx. The board for the Manhattan section has received more than 180 applications, from local businesses to the Gap, the national clothing retailer. The Bronx section is still in early stages of organization.

A number of cities and states created economic zones in the past, using only tax incentives, but the results have been mixed at best, Mr. Cuomo said.

''We think we took the best lessons from enterprise zones, improved upon them and added the elements that were lacking,'' he said. ''We learned from the shortcomings and linked the tax incentives to hiring within the zone.''

A business that moves into the area and hires local residents can deduct $3,000 from its annual tax bill for each local employee. The grants would help pay for local infrastructure improvements and for security to make the areas more attractive.

The aid package also contains incentives for construction of low-income housing, a provision squarely at odds with the Kemp approach.

''The last thing some of these areas need is more low-income housing,'' said Mr. Weicher, now a senior fellow at the Hudson Institute, a moderately conservative research group. Further, he said, the incentive to hire employees from the zone may be impractical, because many blighted urban areas are lightly populated.